Letting your home enter into a short sale or foreclosure isn’t as easy as handing over the keys. So, before you make a decision that will impact your credit for years to come, ask yourself: does walking away from your mortgage make financial sense?

You may think walking away from your mortgage makes sense if you are no longer able to afford the monthly payments and can’t refinance the mortgage loan to a lower rate. This is common when property value has fallen far below the purchase price and you’re upside down on the loan.

Credit Ramifications with a Mortgage Default

Letting mortgage payments become delinquent (behind) will have an immediate and detrimental impact on your credit scores. The late or missed payments will remain on your credit for seven years and will likely interfere with your chances of being approved for another mortgage loan in the future.

A mortgage loan settled through a “short sale” or listed as “foreclosure” will cause a steep decline in a borrower’s credit score. When a homeowner chooses to walk away from their mortgage, the foreclosure will be listed on the report seven years from the filing date of foreclosure.

Exploring Other Options

Many people often struggle over the ethical aspect of walking away from a mortgage when your house is “underwater,” so you may want to explore other options before defaulting. It’s common for home-buyers to consider refinancing, especially when your current mortgage rate is considerably higher than current mortgage rates or when you have an adjustable-rate mortgage (ARM) and want to switch to a fixed-rate loan.

Before you start missing payments, inquire with your lender about refinancing options, a loan modification, or look to the latest government programs. Your score will likely play a role in the approval process so try your best to stay afloat until you decide there is no other option than to default on your mortgage.

Understand the Consequences

Before you decide that a short sale or foreclosure is right for you, talk to a real estate attorney or financial advisor to ensure you have all the right information to make an informed decision.

Most importantly, understand the hit your credit score might take if you decide to foreclose on your home. Having good credit is one of the most important factors in securing a mortgage and the foreclosure might leave a mark on your credit that prevents you from securing a home loan in the near future.

If you are approved for a loan, your credit score is still a determining factor in the percentage rate you will qualify for and the terms that might apply to your loan. Be sure you’re ready to take on the negative consequences of a foreclosure before you make the move.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc.  © 2013 ConsumerInfo.com, Inc.  All rights reserved.